Medicaid Expansion Has Been Good for U.S. Hospitals’ Bottom Line

NEW YORK (Reuters Health) – Hospitals in states that expanded Medicare under the Affordable Care Act have reaped financial benefits in terms of reductions in uncompensated care costs, increases in Medicaid revenue, and improved profit margins, a new study suggests.

“Overall, it does seem like there is a potential financial benefit for hospitals in states that expanded Medicaid,” Fredric Blavin, of The Urban Institute in Washington, DC, noted in an interview with Reuters Health.

To see if Medicaid expansion has had an influence on a hospital’s finances, he analyzed data from the American Hospital Association Annual Survey and the U.S. Centers for Medicare and Medicaid Services for fiscal years 2011 through 2014.

The sample included between 1,200 and 1,400 hospitals per fiscal year in 19 states that expanded Medicaid in early 2014 and between 2,200 and 2,400 hospitals per fiscal year in 25 states that did not expand Medicaid.

His analysis found that Medicaid expansion was associated with a decline of $2.8 million in average annual uncompensated care costs per hospital.

In addition, hospitals in states with Medicaid expansion saw an increase of $3.2 million in average annual Medicaid revenue per hospital, relative to hospitals in states without Medicaid expansion.

Medicaid expansion was also associated with significantly improved excess margins (a profitability indicator that includes all other sources of income, not just those from patient care) but not improved operating margins.

“For states still considering Medicaid expansion, these findings suggest that expansion may be associated with improvements in hospitals’ payer mix and overall financial outlook,” Blavin concludes in his October 11 JAMA paper.

“States that have not expanded Medicaid can expand pretty much at any point, and the findings of this study are certainly something that state policymakers can consider when determining whether or not to expand Medicaid,” Blavin told Reuters Health.

He cautioned, however, against generalizing the findings to all states. Changes in financial outcomes for hospitals in any one state will likely depend on a variety of factors, such as a state’s income and coverage distribution before health reform, Medicaid eligibility thresholds, Medicaid reimbursement levels, and the subsidies hospitals receive for providing uncompensated care, Blavin explained.

The study was supported by the Robert Wood Johnson Foundation. Dr. Blavin has declared no conflicts of interest.